Wix.com Stock Analysis

Many online platforms have fallen flat in the post-Covid era. Does Wix have what it takes?

About

Wix.com Ltd. operates a cloud-based website design and development platform. The companys mission statement is to create your own professional web presence exactly the way you want. The platform offers web templates, web editor, web builder, search engine optimization tools, logo maker, web hosting, and electronic mail marketing services. The company is publicly listed in the US and is headquartered in Tel Aviv, Israel.

The Wix website builder is built on a freemium business model. This is a popular business model, especially on the internet, whereby basic services are provided free of charge while more advanced features must be paid for. Wix.com thus makes its money through premium upgrades. Geographically, revenue is generated from North America (58%), Latin America (4%), Europe (26%), and Asia and the rest (12%).

Technical Analysis

Well what can one say about a chart like this? Wix.com has been freefalling for the last 14 months, from its peak at $350 all the way down to its current price at $68. This represents a staggering 81% loss in value. What can we salvage from the chart? Off the bat, I see no meaningful support levels that has held in this fall from grace. The RSI, however, is finally in oversold territory on the weekly timeframe for the first time since its upward trajectory in early 2020. So technically, it might be time to buy, but first, we must confirm with the fundamentals.

Financials

Revenue has been growing every year, at an average of roughly 30% the past three years. The problem, however, is that the gross profit margin has been declining every year (83% 2017, 79% 2018, 74% 2019, 68% 2020, 61% 2021). In addition to a consistent decline in gross profit margin, the operating profit margin has also been steadily worsening every year. 

As with most growth companies, growth in customer base and revenue is of much greater importance than profit margins, but still, this is a worrisome stat: In 2020 and 2021, Wix recorded massive operating losses, as operating expenses (consisting of selling, general and admin, and research and development), far outweighed the gross profits generated form operations, as can be seen in the figure below.

Assets have grown at a good rate, but once again, we have a problem. There are two ways to fund assets equity via share issues and debt. Unfortunately, due to the share price rapidly falling, funding could only really come from one source debt. In the last 2-3 years, Wix has increased their debt significantly.

Valuation Factors

Competition: There are many online template builders like Wix available to customers online. The most popular names include Squarespace, Shopify, Wordpress, and Weebly. Due to the nature of the business, it is very difficult to retain a competitive advantage for an extended period of time. If any one company comes up with a new idea, the others will be soon to follow. 

Industry: Covid pandemic was the catalyst for Wixs share price growth. People lost jobs and started side businesses and blogs, and many small businesses had to strengthen their online presence. This offered the perfect environment for Wix to thrive. The question is, how will they perform in the post-covid era? I believe this industry solves a massive problem. The total addressable market is huge and is growing by the day as the world transitions into the digital space. The chance of success is high from a product offering point of view. 

Product stickiness: 80% of premium subscribers opt to pay annually or on a multi-year basis, meaning the product is fairly sticky, with high switching costs. This, of course, is a great sign of confidence from clients as well as for retention of future revenue streams. 

Products and tools: Wix offer a variety of products for its users. As discussed above, its no longer only a template builder. 

Management: The founders of Wix are still actively involved in the company. Collectively, they boast with years of tech and business experience. Another positive sign is insider ownership, currently at around 6.5% of outstanding shares. As a shareholder, its always a positive sign if management has skin in the game.

B2B sales growth: B2B partnerships, which currently accounts for only 20% of the revenue, may accelerate growth over the next few years. The B2B segment revenue grew by 75% in 2021, which is very promising, as the addressable market for this segment is massive and yet to be fully capitalized on.

Summary

Looking at the company, its management, and its products, and the technical analysis, Id say Wix is a clear-cut buy. But looking at the financials, I am slightly concerned. Will they keep growing their product line and can they keep growing revenues? I believe so. Theyre going to have to increase growth and decrease operating expenses, which is very possible. I do believe Wix can be profitable if they choose to, but at this stage their goal is to grow the business. Final consensus: small buy / watchlist.

Disclaimer: Just a friendly reminder - this is not financial advice. Always do your own research before taking a position. Content is for informational and educational purposes only.